KARACHI, Oct 9: Industrialization in Pakistan has followed the traditional path taken by both the developed and developing nations.

In the initial phase, industrial investments were debt- driven (foreign and local loans) and infant private sector was nurtured under official patronage. It was conventional wisdom. No country has escaped crony capitalism in the process of development of the market.

But over the past few decades, most corporates have come of age. They now manage their finances much better through choices offered by a more diversified capital market. For running their businesses, they depend more on their own resources than bank borrowing. And they prefer to borrow in local currency.

Figures compiled by the State Bank show that in recent years there has been a steady decline in the corporate indebtedness. "The more conventional debt: equity ratio has come off substantially to 45 per cent from 59 per cent a year ago," say central bankers. It stands out in the sharp contrast to past corporate practices when heavy bank borrowings made firms vulnerable to business cycles.

Hundreds of textile and other industrial units went sick when Pakistan resorted to massive devaluation of the rupee in early 1970s that made servicing of heavy debts next to impossible. In 1990s, many such corporates vulnerable to volatility in the exchange and interest rates, lost their financial liability.

Perhaps, firms have gained much from their traumatic experience. The corporate sector has never been so liquid says a State Bank report and adds: "Cash generated from its operations (corporates) is enough to liquidate almost three-fourth of long term debt....despite the hefty rise in dividend payments, which showed an appreciation of almost 70 per cent over the previous year. The borrowing mode is also not a cause of concern as most of the debt contracted is in local currency."

With the market flooded with excess money, the corporate bargained hard with banks to cut their financial charges by more than one-third over the previous levels.

As some of the large scale industries are running at full capacity, bankers see the business opportunity from the requirement for finance for industrial expansion. They reckon that corporates would borrow money from banks for future investments. Firms may prefer debt over equity because of tax benefits.

Improvements in corporate performance are not confined to skills of financial management alone but cover other areas of business activity as well. There is a growing recognition that the corporates have performed well in most adverse circumstances like separation of East Pakistan, nationalization of 1970s, political instability of 1990s and abrupt changes in economic policies.

Most firms have also stood the critical test of massive exchange and interest rate volatility. In recent years, the much maligned public sector that initially blazed the path of industrial development has once again exhibiting its dynamism.

In the banking sector, National Bank is the market leader and in the oil sector, PSO retains its dominant market share despite foreign oil giants aggressively increasing their presence in the local market.

Incidentally, of the three companies picked up last week for Excellence Award Ceremony 2003 by the 21st Century Business Club, two are from the public sector.

PSO managing director Tariq Kirmani was given the management award for turning PSO from a typical public sector organization into a professionally managed modern commercial outfit. Zakir Mahmood, Habib Bank president, received award for finance, for a turnaround in the bank that made privatization possible. For marketing skills that went into the making of Tapal Tea, a brand competing successfully against multinational products, the award was given to the company's managing Director Aftab Tapal.